TOKYO — In a bid to bring its spiralling debt under control, Japan has undertaken an unlikely exercise: Lawmakers are forcing bureaucrats to defend their budgets at public hearings and are slashing wanton spending.
The hearings, streamed live on the Internet, are part of an attempt by the 8-month-old government of Prime Minister Yukio Hatoyama to tackle the country’s public debt, which has mushroomed to twice the size of Japan’s $5 trillion economy after years of profligate spending. Greece’s debt crisis, which has panicked investors and forced the rest of Europe to put together a multibillion-dollar bailout, has fuelled fears in Tokyo that if spending is unchecked, Japan could become the epicentre of the next global financial crisis.
Hatoyama and his ruling Democratic Party are also trying to wrest control of Japan’s economy from the country’s powerful bureaucracy.
“We want the public to see how their tax money is really being spent,” said Yukio Edano, the state minister in charge of administrative reform, who is spearheading the effort. “Then we will bring about big changes.” The target of the most recent hearings, which began April 23, is Japan’s web of quasi-government agencies and public corporations — nonprofits that draw some 3.4 trillion yen ($36 billion) in annual public funds, but operate with little public scrutiny. Critics have long argued that these organizations, many of which offer cushy executive jobs to retired public officials, epitomize the wasteful spending that has driven Japan’s public debt to dangerous depths.
The daily testimony by cowering bureaucrats, covered extensively in local media, has given the Japanese their first-ever detailed look at state spending. So far, viewers have looked on in disbelief over the apparent absurdity of some of the government spending.
In one example scrutinized April 27, the National Agriculture and Food Research Organization, which is government financed, spent 130 million yen ($1.4 million) last year on a 3-D movie theater used to show footage of scenery from the countryside.
The movie dome, which also plays recordings of chirping insects and babbling streams, is closed to the public and is used to study how the human brain reacts to different types of scenery, explained Takami Komae, head of the organization’s rural engineering department. The findings will be used to help rural areas think of ways to attract more tourists, he testified.
Politicians blasted the project as ridiculous. “The dome’s located in the countryside anyway, isn’t it?” said Manabu Terada, a Democratic Party lawmaker, at a public hearing in Tokyo. “Can’t we just step outside and see the real thing?”
At the end of the hour-long hearing, all financing for the dome’s upkeep was cancelled and the organization was urged to sell the facility off to salvage some of the construction cost.
“Budgets have always been drafted behind closed doors, with nothing to underpin how much should be spent or why,” said Hideo Fukui, a professor of law and economics at the National Graduate Institute for Policy Studies in Tokyo. “Until now, nobody knew how unscrupulous the spending was.”
Many analysts say that Japan must slash wasteful spending and start cutting down on its public debt to avert the interest rate and refinancing risks that have wreaked havoc in Greece. Japan’s government debt reached 201 percent of its gross domestic product by the end of 2009, Fitch Ratings said in a recent report — by far the highest among industrialized countries.
Much of that government debt is held publicly and financed by the country’s once-ample private savings. But a slow drop in the savings rate has raised fears about the long-run sustainability of public finances, especially given the country’s lacklustre economic outlook, the Fitch report said.
Addressing Japan’s debt crisis was among the many promises made by Hatoyama, who swept to power in August when voters tossed out the Liberal Democratic Party after half a century of almost uninterrupted single-party rule. Hatoyama’s Democratic Party has also been keen to find extra money to pay for an ambitious social agenda, including cash payments to families with small children and free public high school education.
The public interest in the budget hearings has been among the few bright spots for Hatoyama, whose poll ratings slumped after political financing scandals and a fight over moving an American military base. At the central Tokyo venue for the hearings, members of the public lined up to watch the bureaucrats’ grilling before panels of lawmakers and appointed experts.
“The bureaucrats looked scared,” said one attendee, Kenji Nakao, a 67-year-old Tokyo retiree. “It was very satisfying to see.”
Under particular scrutiny at the hearings have been the retired ministry officials who take comfortable positions at the government-linked organizations in a practice known as “amakudari,” or “descent from heaven.”
The network of these agencies is complex, including 104 large organizations supervised directly by government ministries and 6,625 smaller public corporations. Critics say that many of the former bureaucrats use their connections in government to win public money for dubious construction and research projects, then delegate out the work while their organizations pocket much of the budget as administrative fees.
Aki Wakabayashi, an author and former worker at a government-supported labour think tank, has been one of the most fervent critics of government spending on these organizations.
In 2001, she blew the whistle on her institute, describing lavish foreign “research” trips for the former bureaucrats leading the institute — complete with first-class air travel and stays in five-star hotels — and clerks who drew researcher salaries while spending their days chatting and reading magazines.
“The Japanese public is angry and demoralized,” said Wakabayashi, who has been advising the Democrats on the cost-cutting panels. “And Japan’s finances are in tatters. We either fix this, or Japan goes bankrupt.”
Another round of hearings is scheduled for May.
The hearings have drawn criticism from some circles. During the recent ones, members of Japan’s scientific community warned that steep cuts in research financing would damage Japan’s global competitiveness. Their fears were exacerbated when a Democratic lawmaker, Renho, who uses a single name, called for reduced spending for a government-financed project to build the world’s fastest computer, asking, “What’s wrong with No. 2?”
Meanwhile, the scale of the cuts — which will amount to a few trillion yen at best against Japan’s budget of 207 trillion yen this year — is too small to make much of a difference, some experts say.
Even supporters like Wakabayashi doubt that the Democrats, with strong links to the country’s labor unions, will cut too deeply into the estimated tens of thousands of unneeded workers at the government-associated entities.
Some organizations, meanwhile, are making last-ditch attempts to drive home their relevancy. In a hastily called press conference in April, the government-financed Fisheries Research Agency announced that it had succeeded for the first time in fully cultivating Japanese eels, a fish whose breeding habits had long baffled scientists.
Kiyoshi Inoue, executive director at the agency, stressed the importance of the breakthrough. “These findings are at the cutting edge of global research,” he told reporters.